Clarification of Pre-Suit Notice as Condition Precedent in RMBS Repurchase Obligations

Clarification of Pre-Suit Notice as Condition Precedent in RMBS Repurchase Obligations

Introduction

U.S. Bank N.A. v. DLJ Mortgage Capital, Inc. (2025 NYSlipOp 02139) arises out of two substantially identical breach-of-contract actions filed in 2015 and 2019 by U.S. Bank, as trustee of the Asset Backed Securities Corporation Home Equity Loan Trust 2006-HE7, against DLJ Mortgage Capital, Inc. (“DLJ”) and Ameriquest Mortgage Company (“Ameriquest”). The Trust is an RMBS vehicle sponsored by DLJ into which Ameriquest sold residential mortgage loans. Each complaint asserted four causes of action based on various repurchase and notice obligations triggered by breaches of representations and warranties (“R&Ws”) set forth in:

  • The Reconstitution Agreement (“RA”),
  • The Pooling and Servicing Agreement (“PSA”), and
  • The Mortgage Loan Purchase and Interim Servicing Agreement (“MLPA”).

The key issues were:

  • Whether DLJ’s failure to notify the trustee of discovered R&W breaches (the “Notice Claims”) could support a standalone cause of action;
  • Whether plaintiff complied with the MLPA’s 90-day “Notice of Discovery Deadline” for delivering breach notices to Ameriquest;
  • The effect of pre-suit notice requirements under the PSA and MLPA on the 2019 action; and
  • Whether the 2019 action was timely as to each defendant under CPLR 205(a).

On appeal, the First Department modified and affirmed portions of the Supreme Court’s orders, refining the rules governing notice as a condition precedent in RMBS repurchase disputes.

Summary of the Judgment

The Appellate Division held:

  • DLJ’s failure to notify the trustee under PSA §§2.03 & 2.05 did not give rise to an independent claim where DLJ already had a repurchase obligation. Such “Notice Claims” must be dismissed (citing U.S. Bank N.A. v. EquiFirst Corp., 234 AD3d 463 [1st Dept 2025]).
  • The trustee’s claims based on 2012 breach notices were time-barred under MLPA §7.04(4), which unambiguously requires notice within 90 days of discovering a breach. The trustee’s alternative interpretations of that deadline were rejected as contrary to the contract’s plain text.
  • Claims based on 2019 breach notices were properly dismissed in the 2015 action (because notice was given post-suit) but survived in the 2019 action, since the trustee had provided pre-suit, loan-specific notice after concluding the 2012 action under CPLR 205(a).
  • The 2019 action was untimely against Ameriquest because it did not fall within six months of any termination of prior proceedings against Ameriquest.
  • The 2019 Notice Claims against DLJ were not barred by duplication under CPLR 3211(a)(4), given the differing procedural postures of the two actions.

Analysis

Precedents Cited

The court relied on and distinguished a series of prior decisions to shape its outcome:

  • U.S. Bank N.A. v. EquiFirst Corp. (234 AD3d 463 [1st Dept 2025]): Held that when a repurchase obligation exists substantive ly, a separate claim for notice under PSA §§2.03 & 2.05 is duplicative and must be dismissed.
  • U.S. Bank N.A. v. DLJ Mtge. Capital, Inc. (146 AD3d 603 [1st Dept 2017]): Earlier appeal addressing ambiguity of the MLPA 90-day notice deadline—here expressly overruled on that point.
  • U.S. Bank N.A. v. DLJ Mtge. Capital, Inc. (“ABSHE V”) (38 NY3d 169 [2022]; 33 NY3d 72 [2019]): Clarified that RMBS contracts require pre-suit, loan-specific notice as a condition precedent and that such notice can be “boot-strapped” via CPLR 205(a) from a prior related action.
  • Southern Wine & Spirits of Am., Inc. v. Impact Environmental Eng’g, PLLC (104 AD3d 613 [1st Dept 2013]): Confirmed that post-complaint notices do not satisfy pre-suit notice conditions.
  • Sebro Packaging Corp. v. S.T.S. Industries (93 AD2d 785 [1st Dept 1983]): Established that a complaint must plead all causes of action it seeks to assert, including those based on independent discovery obligations.
  • Board of Mgrs. of the 25 Charles St. Condominium v. Seligson (106 AD3d 130 [1st Dept 2013]): Applied the law-of-the-case doctrine to bar relitigation of issues already decided on prior appeal.
  • Pecora v. Pecora (204 AD3d 611 [1st Dept 2022]): Emphasized that failure to reasonably explain delay in seeking leave to amend supports denial of amendment.

Legal Reasoning

The court’s reasoning turned on strict contract interpretation and established RMBS-specific principles:

  • Unambiguous Contractual Deadlines: MLPA §7.04(4) requires the trustee to give breach notice to Ameriquest “within 90 days of discovering” an R&W breach. The court found this plain, rejecting any need for reference to other date markers or events.
  • Condition Precedent Doctrine: Both the MLPA notice deadline and the PSA’s backstop repurchase notice requirement are contractual conditions precedent. Failure to satisfy them defeats substantive repurchase claims, even if the underlying breaches are later confirmed.
  • Pre-Suit, Loan-Specific Notice: RMBS precedent requires that notice be provided before suit and must identify each loan at issue. Notices served only after commencement of the 2015 action could not support claims in that action.
  • CPLR 205(a) Time-Tolling: Where a subsequent complaint relies on a prior action’s timely commencement, “pre-suit” notice may be satisfied if it was given before the later filing but after the earlier action concluded.
  • Law-Of-The-Case: The trustee’s effort to relitigate futility of notice compliance was barred by prior determinations on earlier appeals.

Impact

This decision reinforces and refines RMBS litigation doctrine in several ways:

  • Trustees must strictly track 90-day discovery deadlines and serve loan-specific, pre-suit notices to trigger repurchase obligations.
  • Post-suit notices cannot cure notice deficiencies in the same action.
  • Where multiple actions are filed, CPLR 205(a) may revive notice-condition compliance—but only if the trustee times filings and notices carefully.
  • Parties cannot avoid clear deadlines by proposing alternative contract readings inconsistent with plain language.
  • The decision underscores the limited role of amendment and futility exceptions when deadlines are breed out by earlier appeals.

Complex Concepts Simplified

  • RMBS: Residential Mortgage-Backed Securities—instruments pooling home loans into a trust, sold to investors.
  • Repurchase Obligation: A seller’s duty to buy back defective loans when warranties about loan quality are breached.
  • Backstop Provision: A secondary repurchase obligation of the sponsor (DLJ) if the primary seller (Ameriquest) fails to repurchase.
  • Condition Precedent: A contractual requirement that must occur before a party can demand performance or sue.
  • Pre-Suit Notice: A written warning that defects exist, served before initiating litigation to allow cure or repurchase.
  • CPLR 205(a): New York rule that tolls time to commence a second action if filed within six months after termination of a prior related action.
  • Law-Of-The-Case: Doctrine barring reconsideration of legal issues decided earlier in the same litigation.

Conclusion

U.S. Bank N.A. v. DLJ Mtge. Capital, Inc. delivers a clear message to RMBS trustees and sellers: adherence to notice deadlines and conditions is non-negotiable. The decision clarifies that unambiguous contractual deadlines, once missed, cannot be salvaged by post-suit notices or novel interpretations. It also reinforces the importance of pre-suit, loan-specific notices and the proper use of CPLR 205(a) tolling in successive actions. By affirming these principles, the First Department ensures greater predictability in RMBS repurchase litigation and underscores the binding nature of law-of-the-case determinations.

Case Details

Year: 2025
Court: Appellate Division of the Supreme Court, New York

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